The <u>Legal</u> Definition of Total Disability

Saturday, March 26, 2005 | 0

Effective 1-1-2005, California has a new Permanent Disability Rating Schedule, based on the AMA Guides for the evaluation of permanent impairment, fifth edition.

The new rating schedule itself on page 1-2 states as follows:

"A permanent disability rating can range from zero to 100%. Zero percent signifies no reduction of earning capacity, while 100% represents permanent total disability. A rating between zero and 100% represents permanent partial disability. Permanent total disability represents a level of disability at which an employee has sustained a total loss of earning capacity. Some impairments are conclusively presumed to be totally disabling (Labor Code 4662)."

All of this sounds fair enough, but it is not. It is not because the AMA Guides only provide that a person is totally disabled when they reach the state of permanent death. ("Closely approaching death" rates 95% according to the AMA Guides, chapter 1.)

Except for the four conclusively presumed total disabilities under Labor Code 4662, no one who is totally disabled would be found such under the Guides, because the Guides describe "impairment for activities of daily living" (the ability to exist as a person) rather than disability from work.

However, it is in fact a permanent disability rating schedule. Permanent total disability is correctly described on page 1-2 as meaning a total loss of earning capacity.

Applying that definition in practice according to the terms of the AMA Guides, fifth edition, is simply impossible. A quick run through the AMA Guides will show that virtually every chapter of the AMA Guides describes total disabilities at far less values than total. This because the AMA Guides frankly admit that it is not designed to describe disability, but rather the loss of impairment to exist as a person. A far different concept.

What to do?

The California Courts long ago addressed the issue of the definition of total disability under similar circumstances. Beginning with the case of Erreca v. Western States Life Insurance Company (19 Cal 2nd 288, 1942), a long line of California Appellate and Supreme Court cases have defined what "total disability" actually means. It has been held in the Erreca case, the Moore case, and innumerable other cases, that for an insurance carrier to deviate from the California common law definition of total disability constitutes bad faith conduct and the insurance carrier's definition of total disability will be replaced by the California definition of total disability contained in Erreca .

The same is true for administrative regulations (and the rating schedule is such an administrative regulation) which try to narrowly define total disability. See, for example, Zunino v. Carleson, (33 Cal Ap 3rd 36, 1973). In the Zunino case the director of the State Department of Social Welfare attempted to narrowly define the definition of "permanently and totally disabled" under the California welfare laws. The Court held:

"The term "disabled" and its noun form "disability", in the context of the problem before us have a settled meaning. They connote an inability to substantially engage in any gainful occupation by reason of medically determinable physical or mental impairment." (Citing Erreca v. Western States Life Insurance Company, supra)

The Court went on to state that the rules of statutory construction "require that words of a statute be interpreted in their ordinary acception and significance, and with the meaning commonly attributed to them." The Court found that the claimant in question was in fact permanently precluded from participating in any remunerative activity. The Court went on to find that because the regulation set forth a more strict definition of total disability (where a person who could engage in "homemaking" was not totally disabled) such construction was an inappropriate restriction of the common and ordinary and accepted meaning of the words "total disability". The Court then states significantly:

"To the extent that the regulation is contrary to the Federal act and denies aid to needy persons who by reason of physical or mental impairment are substantially permanently and totally disabled from engaging in gainful employment, it must be deemed invalid."

The Court held that a regulation that sets up an artificial standard (divorced from the reality of the of disability resulting from physical or mental impairment) shall be declared invalid.

Likewise, the provision of the new rating schedule (a State regulation) that sets up an "artificial standard, divorced from the reality of the concept of disability" should be declared invalid. Certainly, evidence can and should be introduced to rebut the fiction of the new rating schedule, that someone has to be dead to be totally disabled.

What is the Supreme Court definition of total disability from the Erreca case? (Again a unanimous California Supreme Court decision dating back to 1942.) The Erreca Court states:

"Total disability exists, within the meaning of a general disability clause, whenever the insured is incapacitated from following any substantial or remunerative occupation for which he is fitted or qualified, mentally or physically, and by which he is able to earn a livelihood."

The Court goes on to state:

"It is unreasonable to deprive an uneducated laborer, disabled from performing any manual work, of the benefits of his policy, because he might, notwithstanding those disabilities, with training and study, pursue a profession at some future date; or become an accountant or a banker. And it would be equally unreasonable to hold that a doctor, lawyer, or business executive is not totally disabled from engaging in "any occupation" or for performing "any work" because he is able to run a newsstand or work as a day laborer."

Further, "according to overwhelming authority" the term "total disability" does not signify an absolute state of helplessness but means such a disability as renders the insured unable to perform the substantial and material acts necessary to the prosecution of a business or occupation in the usual or customary way. Recovery is not precluded under a total disability provision because the insured is able to perform sporadic tasks, or give attention to simple or inconsequential details incident to the conduct of a business."

The Erreca case has been consistently followed by California Courts since 1942, and has been cited in innumerable decisions.

The case of Moore v. American United Life Insurance Company (150 Cal Ap 3rd 610, 1984) is instructive. The Moore case involved a group disability plan. The Moore case held as follows:

1) An insurance carrier cannot insert into a disability policy a definition of total disability more restrictive than California law under Erreca allows.

2) When coverage provisions in general disability policies require total inability to perform "any occupation", the Courts have assigned a common sense interpretation to the term "total disability" so the total disability for purposes of coverage results when the employee is prevented from working "with reasonable continuity in his customary occupation or in any other occupation in which he might reasonably be expected to engage in view of his station and physical and mental capacity", citing Erreca .

3) A group disability carrier which inserts a definition of total disability more restrictive than the California legal definition as contained in the Erreca case, commits bad faith and is liable for punitive damages.

4) The "test" of "total disability" set forth in Erreca requires that the real-world employment marketplace be considered in determining whether an insured is totally disabled. Under this test, "total disability" is one that prevents the insured from working with reasonable continuity in his customary occupation or in any other occupation in which he might reasonably be expected to engage.

5) "One with a serious disability who cannot reasonably find work cannot work with reasonable continuity." Evidence of plaintiff's actual employment prospects was relevant to show that, under the Erreca test, she could not, in fact, work with reasonable continuity.

6) "An insured under a policy of disability insurance has no interest in a hypothetical job market which does not, in fact, exist. That fictional employment arena will supply neither lost earnings nor piece of mind."

7) "As our Supreme Court pointed out in Eagan , (24 Cal 3rd 819, 1979) a disability insurer well knows that a disabled insured under such a policy expects to be covered for loss of earnings caused by an inability to work in the real world. In making a determination of employability, an insurer cannot reasonably expect to rely on the unsupported assumption that one who has a serious disability is able to compete for work on an equal basis with the non-disabled, even assuming the skills of the disabled worker are otherwise equal."

8) "Age, education, training, and experience are simply specific ingredients of (what constitutes) physical and mental capacities." Each such factor must be considered in determining whether a person is totally disabled.

9) The appropriate jury instruction in such a case is as follows:

"The term "total disability" as applicable to the insurance policy involved, is defined as a disability that renders one unable to perform with reasonable continuity the substantial and material acts necessary to pursue his usual occupation in the usual or customary way or to engage with reasonable continuity in another occupation in which he could reasonably be expected to perform satisfactorily in light of his age, education, training, experience, station in life, physical and mental capacity."

10) This definition of total disability has been the law in California since 1942, citing Erreca .

What conclusion can we draw from the long line of cases following the Erreca decision? I think such conclusions are as follows:

1) The California rating schedule cannot define total disability in an artificial way that is more restrictive than the definition set forth above under the Erreca test.

2) This is because the Erreca test is a realistic common sense test of the reality of the disability.

3) It is totally inappropriate to impose some artificial test, such as "closely approaching death", or a test of "impairment" as per the AMA Guides, when the ultimate question is one of "disability" (loss of earning capacity).

4) That disability determination is what is the loss of earning capacity. It is not what is the capacity to exist or live as a person as defined in the AMA Guides.

5) To the extent that the AMA Guides deviate from the Erreca test, the Guides themselves should be declared invalid and an arbitrary exercise of inappropriate discretionary rule making by the Administrative Director. Again, see Zunino v. Carleson where such an administrative regulation was struck down as invalid.

6) Pending a Court's decision finding that the restrictive definition of total disability as set forth in the impairment guides and as incorporated in the new rating schedule is inappropriate, each lawyer will have to on a case by case basis utilize these definitions of total disability to rebut the rating schedule. The rating schedule itself, per the implementing statute, Labor Code Section 4660(2)(c) states that it is "prima facie evidence". Prima facie means exactly what it says. It is not conclusive. It is rebuttable.

7) Thus, when the prima facie evidence as per the AMA Guideline impairment rating is inconsistent with the California law as to what constitutes total disability as set forth above, the rating schedule should be found by the Courts on a case by case basis to have been rebutted. It is up to each of us to present such evidence, pending a determination that the whole rating schedule is unconstitutional as being contrary to California legal requirements as to the definition of total disability.

As to partial permanent disability, these would range from 1% to 99%, not in comparison to a state of death, but in comparison to a state of total disability as per the Erreca decision set forth above. The Guides do not and cannot do that, because the Guides do not measure disability, but only impairment for the ability to exist as a person. A simple example should suffice. A person who has a brain impairment requiring constant supervision and assistance with activities of daily living (meaning someone has to feed you and dress you) is defined under the Guides as a 50% impairment. How absurd. That person is totally disabled, per se. No one would hire such a person. That example per se meets the Erreca test and a person with such a disability should be found 100% disabled as a matter of law, rather than 50% impaired per the AMA Guides.

A careful analysis of all of the California disability cases subsequent to the 1942 unanimous Supreme Court decision in Erreca will find that not one single case has deviated from the Erreca requirements. The Workers' Comp Courts and Judges are just as bound to follow the Erreca decision as are any other Courts.

Article by attorney Arthur L Johnson of the applicant law firm of Butts and Johnson. Arthur can be reached at (408)293-4818.

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